Taiwan quake could plunge global smartphone industry into chaos as world's largest chipmaker responsible for 90% of supply halts operations

A Taiwanese chipmaker, responsible for 90 percent of the world's most advanced computer processors, halted production Wednesday amid a historic earthquake.

Taiwan semiconductor manufacturing (TSMC) produces high-end microchips used in smartphones, cars, cloud server farms and AI-powered tech — and its factories need to continually operate to meet demand.

A spokesperson for TSMC told reporters that some of its equipment had been damaged and workers were evacuated from several of the firm's key sites while facilities were inspected for damages and future safety.

The 7.2-magnitude quake, which released the energy equivalent of an atomic bomb, has raised alarm about the Taiwan semiconductor sector's vulnerability as tensions over the island's sovereignty heat up between China and the United States.   

A Taiwanese chipmaker, responsible for 90 percent of the world's most advanced computer processors, halted production Wednesday amid a historic earthquake

The 7.2-magnitude quake, which has killed at least 9 people and injured over 900 more, led the island nation's top chipmaker - Taiwan Semiconductor Manufacturing (TSMC) - to evacuate its manufacturing facilities and suspend work at the construction sites expanding its operations

Barclays analysts said some highly sophisticated semiconductor fabs need to operate seamlessly 24/7 in a vacuum state for several weeks and the halts would disrupt the process, pushing up pricing pressure in the sector.

This could spillover to cause a "short-term hiccup" to electronics manufacturing in economies focused on upstream products, such as Japan and Korea, as well as economies focused on downstream products, such as China and Vietnam, they said

TSMC also took a small hit on the Taiwan Stock Exchange, where TSMC stock dipped 1.3 percent at close on Wednesday. 

But the quake, which killed at least 9 people and injured over 900 more, not only led the island nation's top chipmaker to evacuate its manufacturing facilities. It also suspended work at construction sites expanding TSMC operations.

But the company said that the strong earthquake had largely spared its manufacturing operations.

TSMC noted that Wednesday's strong earthquake had largely spared the company's manufacturing operations. 'There is no damage to our critical tools including all of our extreme ultraviolet lithography tools,' the company said in a statement, according to Bloomberg

'There is no damage to our critical tools including all of our extreme ultraviolet lithography tools,' the company said in a statement, according to Bloomberg. 

The chipmaker did note that a modest amount of equipment was damaged at some facilities, but TSMC representatives said it expected a full and speedy recovery. 

Based in the Taiwanese city of Hsinchu, TSMC also disclosed to Business Insider that some of its chip-making plants were only evacuated as a precautionary measure.

'The company is currently confirming the details of the impact,' TSMC's spokesperson said, but noted that initial inspections of the company's construction sites revealed 'normal' conditions with no serious damage to their future factories.

Situated roughly 100 miles off the coast of mainland China, Taiwan is also home to smaller chip producers beyond megalith industry leader TSMC.

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One of the firm's small local rivals, United Microelectronics Corp. (UMC), also hit pause on its manufacturing at some plants Wednesday, evacuating facilities in Hsinchu and Tainan, to assess the damage from the quake.

These abrupt work stoppages are likely to have a real but temporary impact on the delicate manufacturing of intricate etched microchip fabrication.  

'Some of the high-end chips need 24/7 seamless operations in a vacuum state for a few weeks,' as analysts for Barclays, Bum Ki Son and Brian Tan, said.

'Operation halts in Taiwan's northern industrial areas,' the analysts said, 'could mean some high-end chips in production may be spoiled.'

At the height of the Coronavirus pandemic, lockdowns in the summer of 2021 caused a drop in Taiwan's chip production — leading to global shortages and price hikes between 10 and 20 percent.

China hawks in the US national security sector have long warned that the US economy could take a hit as high as 6.7 percent of GDP in the first year of a potential hot conflict between the two superpowers, if a war broke out over Taiwan's contested status as its own sovereign nation.

This March, Taiwan's defense minister appeared to accidentally admit US Special Forces are on the island training the Taiwanese military off the coast of China — a move which could precipitate a startling escalation of hostilities in the region.

A Chinese invasion of Taiwan could lead to over 500,000 dead and devastation to the tech sector powering the global economy, all while spreading Beijing's growing influence, at least according to a January report from the Henry Jackson Society.

A Bloomberg Economics analysis estimated that a Chinese blockade of the island, could drop 3.3 percent off US GDP in the first year. 

For its part, TSMC told reporters that it has already been hard at work diversifying the geographic spread of its operations with new plants in Arizona, Japan, and Germany to mitigate future disruptions.

The Biden administration too has been taking steps to boost chip manufacturing at home, promising to turn the 'Rust Belt' into a 'Silicon Heartland' with the passage of the $52 billion CHIPS Act in 2022.

CHIPS will provide subsidies for production, research and workforce development in tech hardware manufacturing, but particularly for semiconductor microchips.

Despite fearful reactions in Taiwan, the earthquake had no impact on TSMC's stock price on the US-traded market, where shares were up 1.6 percent Wednesday morning in New York. 

And its rivals stock, UMC, scarcely changed.

'The robust demand for the firm's advanced node processes will cushion any financial effects,' analysts at Bloomberg Intelligence said of the quake.